Allocating Control Over Firms: Stock Markets Versus Membership Markets

Gregory Dow

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: The new institutional economics regards the firm as a set of incomplete contracts among input suppliers. The theory of the firm must therefore explain how decision-making powers are allocated. Two leading candidates for such control rights are capital suppliers and labor suppliers. Most large enterprises in developed economies award formal control to investors rather than workers. I suggest here that this asymmetry can be traced in part to differences between stock markets and membership markets as institutional mechanisms for allocating control over firms. The attractive theoretical properties of membership markets are examined, along with some factors that may account for their rarity in practice. These practical difficulties help explain the rarity of labor-managed firms themselves, along with various facts about their design, behavior, and distribution across industries.

Keywords: Unemployment Insurance; Experience Rating; Layoffs (search for similar items in EconPapers)
JEL-codes: J41 J65 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2000, Revised 2000-02
Note: An earlier draft was presented at the NBER Conference on "Shared Capitalism" in Washington, D.C. on May 22-23, 1998
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Citations: View citations in EconPapers (1)

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Journal Article: Allocating Control over Firms: Stock Markets versus Membership Markets (2001)
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